Irwin Stelzer
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WHAT do Mikhaïl Khodorkovsky, Mikhaïl Gutseriev, and John Browne have in common? They all thought their desire for profits from Russia’s vast oil and gas reserves trumped Vladimir Putin’s lust for power. Khodorkovsky now languishes in a Siberian jail, and when released will be rearrested and charged with crimes that will get him another 28 years in prison. Gutseriev, head of the mid-sized oil company Russneft, was recently charged with “large-scale tax evasion” and conducting illegal activities as part of an “organised group” – the same charges laid against Khodorkovsky. It seems that the Kremlin deputy chief of staff, Igor Sechin, the former KGB agent who heads state-owned Rosneft, which took over Khodorkovsky’s Yukos oil company, “is extremely ambitious in regard to these [Russneft’s] assets”, according to press reports.
Which brings us to Lord Browne, who also thought there was money to be made in Russian oil. He set up TNK-BP, a joint venture with a group of Russian billionaires that accounts for about 25% of BP’s glo-bal production, and is developing the huge Kovykta gas field in eastern Siberia – or not.
It seems that TNK-BP is in violation of its licence to develop the Kovykta field, according to Oleg Mitvol, deputy head of Russia’s Federal Resource Management Agency. This ratchets up the pressure on the three billionaire partners of BP to sell out to state-controlled Gazprom – several former KGB agents grace its board. “This is just going to be another phone call,” one banker familiar with the matter told the Financial Times. “If they are told to sell, they will sell.”
As did Royal Dutch Shell, which ceded control of its $22 billion Sakhalin-2 natural-gas project to Gazprom, and threw in a $1 billion annual payment to the Russian treasury after environmental authorities threatened to close the project.
Control of 50% of oil and, in effect, all gas production now resides with the state.
Worse still, Russia has successfully gained control of the pipeline networks that deliver fuel to the West. Putin recently persuaded the presidents of Turkmenistan and Kazakhstan to join Russia in building a pipeline to ship their natural gas to western markets through Russia. It seems like only yesterday that I was briefed at the State Department on American plans to encourage the construction of a new pipeline that would hook up with existing lines through the Caucasus and Turkey, bringing Central Asian gas to Europe without passing through a Russian bottleneck. Those plans are now dead, or at least on life support.
Putin also recently approved plans to build an oil pipeline to the Baltic port of Primorsk, bypassing independent-minded Belarus.
All of which gives him huge influence in western Europe. “If power is measured by the fear instilled in others – as many Russians believe – [Putin] is certainly winning,” says The Economist.
None of this would matter if we were dealing with ordinary commercial transactions, aimed at maximising the economic value of Russia’s natural endowments. But that is not the case. First, the takeovers of Shell, BP and other assets hardly represent transactions at market prices. Putin takes his inspiration from Mario Puzo’s The Godfather rather than Adam Smith’s The Wealth of Nations, and makes potential sellers offers they just can’t refuse.
Second, Putin’s goal is not the mere profit maximisation that guides decision-making in market economies. It is to gain influence over the foreign policies of European countries and, to a lesser extent, America. He has already shown that he is willing to cut off gas to Europe, and cooperates with Opec to damage the American economy by keeping oil prices high. A nuclear umbrella prevented the Soviet army from rolling across Europe, but it is no match for supply cut-offs that can throw western economies into recession.
Russia achieved this dominant position for two reasons. The first is that the world’s capitalists behave as Lenin knew they would: “They will furnish credits . . . supply us materials and technical equipment which we lack . . . restore our military industry for our future attacks against our suppliers.” The West has supplied Russia with the technical skills and capital needed to exploit oil and gas resources and sold important bits of western energy infrastructure to Gazprom, chaired by Dmitry Medveded, who is first deputy prime minister of the Russian federation. Never mind that Russia will not allow such foreign investment in its infrastructure, or that it is using its oil and gas wealth to beef up its military. “Our military is the second most powerful force in the world after America’s,” a Russian official trumpeted this month.
The second reason Russia has gained such a dominant hand in its negotiations with energy-dependent countries is the inability of the West to forge a common strategy, the necessary ingredients of which are clear: increase storage facilities as insurance against gas-supply interruptions; finance pipelines that avoid Russian-controlled territories; refuse to sell infrastructure to Gazprom; construct terminals that can receive liquefied natural gas (LNG) from Africa and the Middle East; unite to create countervailing buyer power.
Russia, Tony Blair pointed out last week, is “prepared to use [its] energy resources as an instrument of policy”. But the West is unprepared to use its financial and technical resources in the same way. That failure, warns Blair as he heads off into the sunset, “could be as crucial to our country’s [and, I would add, the West’s] future as defence”.
Irwin Stelzer is a business adviser and director of economic policy studies at the Hudson Institute
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George Bush, in 6.5 years, has created more dissension; lack of world prestige for the US than any prior President. The US National Debt has gone from 4.5 trillion dollars to the current 8.8 trillion and will probably approach 10 trillion by the time he leaves office. His deliberate administration lies on fabricated, manipulated intelligence fooled the general US populace into backing an illegal invasion of Iraq. Anywhere from 200K-650K dead Iraqi civilians; over 25k US casualties; 4 million plus displaced Iraqi civilians and the entire country's base infrastructure destroyed are chilling. US citizens have had their domestic phone calls logged onto NSA computers; been subjected to our courts being bypassed as warrantless searches, wiretaps were carried out; our press then attacked by this administration in revealing these & other transgressions. Bush speaking on democracy is akin to stating Stalin was the founder of the Free Press in Europe.
Rick, Dover, USA
In my opinion, in world politics the wind has changed.
Thanks to the behaviour of immigrants in the West, I think I am not the only one who looks to Putins leadership style with envious eyes.
If only we could have such strong leadership and healthy nationalism from Europes leaders, or even one European leader.
Demographically the West is on the brink of annihilation, all we seem to worry about is the icing on the cake, but soon there will be no cake.
Daniel 888, Melbourne, Australia
Stunning job of the pot calling the kettle black, probably the result of pressure from the old priesthood of intel flunkies who used to run the Western press, yet now cannot even keep up with the blogs. Old spies, get a job. The Wall's down now. Write novels or flip burgers. Yes, I'll take fries with that :>)
I don't know why Norway is not as threatening a natural gas provider as Russia is in everyone's minds, especially as they, not the Russians, control the pipelines to the coast, or are LNG carriers going to come to the UK out of Murmansk and Archangel? Not if Lloyd's and DNV have anything to do with it, which they do: insurance companies run the world, not governments.
If you don't think Putin has done better by his own people than Callaghan or Reagan, you've deliberately forgotten the millions of permanent jobs forever lost in the 1980's which are now all temp jobs in the USUK, if I may name them as one country. At least Russia stands up for its sovereignty.
Walt O'Brien, Binghamton, NY, USA
do you know, why the russian politics tend to draw so much attention lately?
because even western people start to remember some of the soviet union ways of propaganda. and if they don't, eastern european countries with their somewhat stupid russophobia try to make them remember.
the russian state policy, state-owned and controlled media, old soviet anthem, old soviet flag for victory flag, even the way russian statesmen are acting, all those little things are straight from soviet union book.
couple of years ago there was an article in some now-defunct small russian newspaper that said in farther corners of russia still a lot of people live that doesn't know that czarist russia doesn't exist any more.
about the gas problem. i tend to agree that russia is doing the right thing claiming back the gas fields. but i strongly disagree with how exactly it is done.
the cowboy capitalism in post-soviet states isn't a nice thing but it can be dealt with, it just takes some time.
martin, tallinn, estonia
Yes indeed, Russia is using it's resources in nationalist strategic manner. All that this adds up to underlining just how high our reliance on Mid-East, North African energy supplies are to our economy. However, Russia is playing a high risk game with the west, much it's own infrastructure powerstations/lines, roads, railways, and airports,plus communication installations are creaking old Soviet hardware. The kremlin is all too aware of the dilapidated state of these assets and the disastrous economic consequences should (when) they fail, Anatoly Chubais knew this which is why he has opened up the Russian Power industry to foreign investment, primarily because of low profit margins.
Yet this type of attitude is only going to leave Russia with fewer cards to play with in the future. At present rates 15% of the Russian population is predicted to contract AIDs in the next 10-15 years, of which cannot be solved without western knowledge. If they want to play tough then so should we.
Adam, London, UK
This shows why we must follow the French model - 90% nuclear, most of the rest renewable. Australia, Canada, even Kazakhstan are more reliable than the Middle East and Russia. Georgia, Ukraine, and now Estonia - all have turned west and all have suffered Russian meddling.
Ben, York,
sergey , what western publications are you reading
are you really saying that the west is willing togo to war
for gas ,how sad that you think that way .please reply
intrested reading.
george william taylor, hull, uk
"Control of 50% of oil and, in effect, all gas production now resides with the state.
Worse still ..."
- reading western press lately, I've got a feeling that a planned attack on Russia is on the way.
It would be just curious, if not so dangereous, to observe how general public is manipulated by the press.
This might be the beginning of the new fight for natural (energy) resources...
Sergey Dekalin, Moscow, Russian Federation
The end of the petro-chemical industries as a source of reliable energy has been well known from 1973. If this means nothing to you check your history books. The fact that we now face a problem from external energy sources is down to the stupidity and short sightedness of those that we, theoretically,allow to govern in our name.
mike, swansea,
The article is in a strange way very heartening. It signifies that not just the Russian economy but the Russian will to live is back. It means that they have learnt the great American lesson of democracy. What they initially thought was that democracy meant transferring the nation's wealth and income hitherto used to fund health, education and pensions to about 15 persons who did not even have the word "Russian" in the Nationality Line (Section 4) of their Soviet Union passport . They didn't like this outcome much since it reduced their GNP by 51% and the average life-span by 6 six years in as many years.They also learnt that these oligarchs went into media ownership in a big way, but decided that the goodies offered by the mind-controllers ie pop on tap, unrelenting advertising, reality TV etc wasn't sufficient compensation. Mr Steltzer shouldn't use the word "West" when he means American or precisely the Wall Street/media owners. As a Western man I know where my sympathies lie.
Marco Borg, London, United Kingdom
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